Tag: Emerging-market stocks

Domestic Recovery is Proceeding as Global Export Engines are Moderating

The domestic economic recovery has been something short of tepid, due in part to the Republican deadlock in the Senate that has successfully stymied any attempt by the Obama administration to create material economic activity prior to mid-term elections. There are favorable signs appearing in different corners of the business community that suggest that a recovery is underway, but until there are meaningful increases in domestic employment, disposable income will not rise to support rebirth in all industry sectors.

The recent upsurge in the S&P 500 index is signal enough that the underpinnings are present to support a stable comeback. Following an extended period of uncertainty, the stock market is almost tiptoeing to favorable economic expectations that have yet to materialize. Foreign exchange trading has blossomed lately due to a seemingly consistent and expected weakening of the Dollar. The Fed has announced a policy of increased quantitative easing, but banks are already hoarding ample reserves that they refuse to lend.

If a real recovery is to materialize, there are certain economic indicators that must abandon their current cautionary trends and leap into a greener pasture of positive territory. Here are a few of the more important items:

• Domestic Hiring: It is not enough for corporations to focus on Asia for growth in deference to hiring practices at home. BLS reports must show more private sector jobs and soon;
• Corporate Activity: Inventory statistics, order pipelines, producer prices, M&A announcements, and executive leader confidence indexes must move in tandem in a concerted fashion toward an obvious objective;
• Consumer State of Mind: Are confidence levels up? Has retail shopping shown a bump up over last year’s figures? Are retailers building inventory in anticipation of a strong Holiday Season? Consumers have been saving and paying down debt, both admirable traits in healthy economic times, but business needs to see consumer spending rising to get them off the dime;
• Assistance for SMEs: Small and medium-size businesses need credit lines and tax incentives to spur growth and fund working capital needs. Recent legislation is a step in the right direction.

If Europe and North America are floundering, why is the rest of the world still growing? The answer is that developing countries have had to severely cutback their production operations in order to respond to slowdowns in the West. Gears have been shifted, but there are current indications that Asian countries are already prepared to support growth in their domestic economies, as well as outside of their borders.

Emerging-market stocks have been on a role lately, and Chinese officials announced today that exports increased over 25% in September. This news followed favorable increases in Japanese machinery orders and consumer confidence in Australia. It appears that Asia is ready to go.

Global crude oil prices also broke out of their $75 to $80 a barrel range, a sign that recovery engines are running nearer to capacity levels from years back. Critics believe that oil prices have merely reacted inversely to a devaluing Dollar, but analysts cited a number of favorable trends in Japan and other markets to support the validity of the recent breakout.

In the meantime, the independent economics research firm of Macroeconomic Advisers has ratcheted back their forecast for third quarter domestic GDP growth from 1.6% to 1.2% on an annualized basis. Exports are not at expected levels, and the resulting trade imbalance continues to widen. A stable domestic recovery cannot come quickly enough.